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How do Ponzi schemes work?

A Ponzi scheme is a type of investment scam that promises high returns with little or no risk. It is named after Charles Ponzi, who became infamous for using this type of scheme in the early 20th century.

In a Ponzi scheme, the organisers lure investors with the promise of unusually high returns on their investments. The organisers may claim to have special access to high-yielding investments or to be able to generate returns through some sort of proprietary or secret trading strategy.

However, in reality, the organisers are not actually investing the money at all. Instead, they use the money from new investors to pay off earlier investors, creating the appearance of profitability. This creates a “pyramid” structure, with the organisers at the top and the investors at the bottom.

The scheme continues as long as there are enough new investors to pay off the existing investors. However, eventually, there are not enough new investors to sustain the scheme, and it collapses. At this point, the organisers disappear with the money, and the investors are left with nothing.

Ponzi schemes are particularly dangerous because they can be very convincing. The organisers often use fake or misleading information to convince people to invest, and they may even pay off early investors to create the appearance of legitimacy. As a result, many people can be taken in by a Ponzi scheme and lose their hard-earned money. It is important to be cautious and to do thorough research before investing in any opportunity.

“When you really believe that trading is simply a probability game, concepts like right or wrong or win or lose no longer have the same significance.” – Mark Douglas

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